MNI China Daily Summary: Wednesday, September 8

REALITY CHECK: China's consumer price index may have accelerated only modestly in August, as some food prices, mainly vegetables and eggs soared in extreme weather conditions while service price gains were tamed by sporadic local Covid-19 outbreaks, industry leaders and analysts told MNI. "CPI may edge up to 1.1% y/y from July's 1.0% growth," said Wang Jingwen, a senior researcher at the Pangoal Institution.

POLICY: China will accelerate the sales of local government special bonds in the second half of the year, exceeding the scale seen in H2 2020, so to stabilize infrastructure investment growth, said Lv Wenbin, deputy director of the Investment Department of the National Development and Reform Commission at a briefing on Wednesday.

LIQUIDITY: The People's Bank of China (PBOC) injected CNY10 billion via 7-day reverse repos with the rate unchanged at 2.2%. The operation left liquidity unchanged given it netted off CNY10 billion reverse repos maturing today, according to Wind Information. The operation aims to keep liquidity reasonable and ample, the PBOC said on its website.

RATES: The seven-day weighted average interbank repo rate for depository institutions (DR007) increased to 2.2008% from the close of 2.1942% on Tuesday, Wind Information showed. The overnight repo average fell to 2.1612% from the previous 2.1846%.

YUAN: The currency weakened to 6.4622 against the dollar from 6.4604 on Tuesday. The PBOC set the dollar-yuan central parity rate slightly higher at 6.4674, compared with the 6.4533 set on Tuesday.

BONDS: The yield on the 10-year China Government Bond was last at 2.8685%, up from Tuesday's close of 2.8550%, according to Wind Information.

STOCKS: The Shanghai Composite Index decreased 0.04% at 3,675.19, while the CSI300 index fell 0.41% to 4,972.13. Hang Seng Index dropped 0.12% to 26,320.93.

FROM THE PRESS: China is likely to invest more in digital networks to support the growth of a digital technology-based economy, Yicai.com reported citing analysts interpreting a comment by Vice Premier Liu He that urges "promoting infrastructure construction moderately ahead of time." Such infrastructure should include 5G, data center, cloud-based computing, AI and vehicle networking, the newspaper said citing Wei Liurong, an engineer with China Academy of Information and Communications Technology. Direct investment in seven major "new infrastructure" including 5G and UHV will reach about CNY10 trillion by 2025, driving cumulative investment to over CNY17 trillion, the newspaper said.

China's foreign exchange reserves will remain at a relatively high level in September as China's exports show resilience in H2 helped by recovering external demand, while the dollar index and U.S. treasury yield may be little changed, Yicai.com reported citing Zheng Houcheng, research head of Yingda Securities. China's FX reserves stood at USD3.32 trillion by the end of August, down by USD3.8 billion from a month ago. The decrease was mainly due to the depreciation of non-U.S. dollar currencies and the decline in major bond prices, the newspaper said citing Wen Bin, chief researcher of China Minsheng Bank. Trade and cross-border capital flows still supported FX reserves, indicating solid economic conditions and balance of payments, the newspaper cited Wen as saying.

Chinese commercial banks that have not set up a wealth management subsidiary may not be able to add new wealth management services as authorities try to limit financial risks growing out of the sector, the 21st Century Business Herald reported citing three independent sources. Medium and small-size banks are gradually withdrawing from wealth management business, as local banking regulations in the first half have limited their growth, the newspaper said. This may significantly impact small banks, and may cause unemployment, as the scale of wealth management business generally accounts for 10-30% of the entire bank's assets, the newspaper said citing an industry insider. In the past, small banks carried out much asset management business through outsourcing as they lacked resources and expertise, the newspaper said.